NEW YORK -- Citigroup Inc. said Friday it reached a deal that will give the government up to a 36 percent stake in the struggling bank.
The government, along with other private investors, will convert some of their preferred stock in Citi to common shares.
Citi will offer to exchange up to $27.5 billion of its existing preferred stock held by private investors at a conversion price of $3.25 per share, a 32 percent premium over Thursday's closing price of $2.46. The government will match up to $25 billion of preferred stock it currently owns for conversion at the same price.
If the maximum amount of preferred stock is converted, current common stockholders will see their ownership stake fall to about 26 percent.
The conversion will help provide Citi the mix of capital to withstand further weakening in the economy.
The Government of Singapore Investment Corp., Saudi Arabian Prince Alwaleed Bin Talal, Capital Research Global Investors, Capital World Investors are among the private investors that said they would participate in the exchange.
One of the hardest hit banks by the ongoing credit crisis, Citi has already received $45 billion in cash from the government and guarantees protecting it from the bulk of losses on $300 billion of risky investments.
Under the exchange agreement, the Treasury Department's remaining $20 billion in preferred shares will be converted into a more senior preferred stock that carries an 8 percent cash dividend rate.
Citigroup said the increase in government ownership will not require additional taxpayer money. The government currently holds about an 8 percent stake in Citi.
As part of the agreement, Citi will suspend dividends on both its common stock and preferred shares.
Citi will also reshape its board of directors, Richard Parsons, the bank's chairman, said in a statement. The board will have a majority of new independent directors as soon as possible, Parsons added.
The company also said it recorded a goodwill impairment charge of about $9.6 billion due to deterioration in the financial markets.
The goodwill charge was added to Citi's 2008 results along with a $374 million impairment charge tied to its Nikko Asset Management unit. The charges resulted in Citi revising its 2008 loss to $27.7 billion, or $5.59 per share.
Shares of Citi tumbled 56 cents, or 22.7 percent to $1.90 in premarket trading.
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